Question of the Month

Over the past few decades, every other sizable sector of the professional services industry has switched wholesale from being organized as partnerships to being organized as corporations. This includes:

The law firm sector appears to be the only remaining holdout sticking with the partnership as the dominant organizational form.

Clearly, the other professional service sectors have concluded that the corporate structure is superior at the ultimate goal, delivering client service. (If any “went corporate” and found clients dissatisfied, they would have switched back.) And, our new “alt-law” competition, not to mention in-house departments, wouldn’t dream of any other form.

So without further ado, our question of the month for you:

Does the partnership form remain the optimal structure for law firms?

No. It's only a matter of time until law firms switch over as well; the corporate form is intrinsically more flexible.

Yes. Law firms have special duties to their clients which a corporate model could jeopardize.

Hi JC –
You are absolutely right. Am reminded of the Jim Collins’ quote: “Companies do not fall primarily because of what the world does to them or because of how the world changes around them; they fall first and foremost because of what they do to themselves.” Cheers, Janet

As always, it depends. I’m re-reading Tomorrowland currently, and I think the partnership model can (and maybe should?) endure for the truly, super-elite firms in New York and London. Those brand names are so strong and the partnerships themselves so cohesive that organizational form just isn’t as crucially important as it may be for the rest of the pack, who remain largely undifferentiated from everyone else and really need the internal management advantages that the corporate form offers over the partnership model, in theory anyway. Once a few try it, the rest will follow just like that group did with going two-tier. The only caveat to the above statement about the super-elite firms is if everyone else going to a corporate structure somehow erodes their market position. But I don’t see that happening. Not over the course of my career (some thirty years hence).

However, partner psychology still trumps everything. Even with the corporate form, are partners going to respect and go along with concepts like command and control, retained earnings, real R&D programs and other professionals (marketing, HR, IT, finance, etc.) being key players in the senior management of the enterprise? Isn’t that what you would really be seeking with a change to the corporate form? Does the answer to that break down along demographic lines?

Dear Skeptic: First of all, thanks for re-reading Tomorrowland. Extra credt to you.

The chapter on the partnership model is the longest chapter in the book, not by accident. It’s complicated. I thoroughly agree with you that there will long remain a handful of super-elite NYC and London firms that are true partnerships, but that the vast majority of firms are “PINO’s”: partnerships in name only. They aspire to emulate the ideal but they’re false imitations, and end up preserving primarily the self-serving and crabbed “rights” of every partner to express his/her view on any and all things “because I’m an owner.” Partner-as-owner is a fact as a matter of law, but it’s not the truth.

Being in a true partnership is actually extremely demanding because at its core is reciprocity: Rights and responsibilities as a partner. That’s why I invoked the analogy from Exodus 37 of the Jews resorting to worshiping a golden calf when Moses had stayed up on the mountaintop for too long. They knew all about Yahweh, the one true God, but Yahweh is unyielding and hard: “I am a jealous God; you shall have no other Gods before me,” etc. Much more fun to “revel and drink” before the golden calf.

Lawyer (I would avoid the term “partner” in this specific context) psychology does indeed “trump everything.” The corporate form without the corporate behaviors you cite–top-down managed, real R&D, a respected diversity of professionals–is just another insipid and unworthy version of “PINO.” Far be it from me to put it past lawyers to change the form and maintain the (dysfunctional) essence.

But finally, I hold out hope with you that demographics will play a part in the transition to true corporations for the practice of law, as will the non-negotiable market pressures from in-house expertise and the freight train gathering speed in the distance that I refer to as “alt-law.”